Today should be a celebration. Facebook has reached the age of 10. It connects over a billion people. However, as active as I am on Facebook and as much value, and fun, I find from it, I can’t help but be terribly disappointed. I suppose it was inevitable. Monetization (and going public) are harsh mistresses. So, what’s the source of my disappointment? I wanted the social web, not a social site.

I hate to say I saw this one coming. When Facebook went public, listed right there under “risks” in its S-1 registration statement was a note that people conducting social activities on other web sites represented a risk to their business. But I want that to be their business. I want my social graph to follow me everywhere. Bringing that graph across all sites should enable all sorts of functionality and value. The problem is that this represents value for us, not Facebook. Monetizing an API is a tough business, certainly more difficult than taking a billion people and monetizing them through advertising. Thus, while Facebook offers Facebook Connect and some sites try to integrate in rich fashion with Facebook and your social graph, this is nowhere as ubiquitous as we all want it to be. And that’s because, plain and simple, Facebook doesn’t make any money that way. The realities of business have hit the ideals of connecting the world’s people. We want to connect them…on our site.

It’s a shame, really. We all want a social web. It would transform our experience, for the better, on most of the web sites we visit on a regular basis. But we’re not going to get that from Facebook. Instead, we get sponsored ads and brand posts and shockingly mis-targeted sidebar advertising. Do we have any chance to get that and, if so, where is it going to come from? Interestingly, we might actually see this connected social web. First, Google and Google +. Don’t laugh. Yeah, no one really uses it. Or do you? Google is actually insinuating Google + into a variety of activities (YouTube, App store, even search) in a way that pushes the social web site to the back but transforms your ordinary activities with social connections. This is a vastly underappreciated move on Google’s part. The other potential? IBM. Again, don’t laugh. Some years ago, fearing Facebook’s control of the social graph, Google launched an initiative called OpenSocial. In typical Google fashion, they lost interest quickly. Fortunately IBM understand the power of an open social graph connecting disparate systems, within and across the enterprise as well as with customers. Thus, IBM has assumed stewardship of the OpenSocial initiative and is actually devoting real resources to it. Starting from the enterprise out is not always a sexy approach to software distribution but it can actually deliver much more complex solutions albeit in longer time frames and with less visibility. But don’t disregard OpenSocial.

Facebook at 10. A remarkable accomplishment. A powerful force. But most of all, a perversion of the real social vision. The next 10 years will be much more exciting.

Facebook recently bought Microsoft’s advertising platform, Atlas, as it seeks to offer greater functionality and insights to its advertisers. This was a subject of great discussion in the Internet Oldtimers group of which I’m a member. Friend and fellow member Tom Cunniff made a provocative statement which encouraged me to respond. While the rules of the group are “what happens on the list stays on the list” — we are free to talk “out of school” — Tom was gracious enough to let me reprint our exchange here. (By the way, if you’re an advertiser or publisher looking for deep insights into the whole advertising space, on- and offline, Tom is your man.)

Tom:

According to CNET, “The deal could help Facebook develop its own one-stop shop for advertisers and agencies to buy, sell, optimize, and track ads across the Web. The idea is to help Facebook give marketers tools to target ads based on social habits that it captures, and to better understand how social activity influences consumer purchases. (…)

The expectation (is) that Facebook will create an ad network that lets it sell ads outside of (FB). Facebook is already plugged into tons of Web sites through Facebook Connect, and each time people share or “like” an item on a site, Facebook’s data trove gets a little bigger. Facebook can connect that data with the information from within Facebook — the social graph — to create a social ad network that is potentially more effective than Google’s AdSense.”

Personally I don’t believe social activity influences consumer purchases much at all. It has value, but no more or less than a billboard: it’s drive-by media.

Boy, that last line got my blood boiling. So I responded:

Tom, you’re absolutely right and you’re completely wrong. And we’re about to ignite a debate that should get us a keynote at ad-tech or even better. 🙂

You’re right that today’s social activity doesn’t influence much consumer behavior. Even worse than the drive-by billboard — that has some value — it’s more like somebody giving you the hard commercial pitch during your cocktail party. Not only do you not want to hear it, it probably produces some negative brand value. Marketers may be able to gain some deep insights but, channeling my inner Nassim Taleb, I’m not sure that this increased data produces improved selling. But that’s a discussion for another day.

But here’s where you’re wrong. I have believed for a long time now, over five years, that the ultimate expression of the social revolution is that the consumer will gain increased power. Today’s consumer is largely at the mercy of marketers. The marketers have all the goods, all the insights, all the power. And how are they using that? Among other things, price discrimination. There used to be things we all saw (largely) the same price on — things at the supermarket, things in the department store — and things that we all saw (largely) different prices on (cars, hotels, airlines). There was some price discrimination — the same item might cost different at Neiman Marcus and Walmart — but many things were very similarly priced. Now, with the “advances” of online, the things that were priced differently are being driven closer together while paradoxically the things that were priced similarly are now being priced differently.

As to the latter, we’ve seen the recent exposes that Amazon, Staples and many others charge different prices based on competitive calculations. The price you see likely isn’t the price I’ll see. But I don’t think that’s durable. Look at what’s happening to those items that were priced differently. Take cars. I can’t vouch for the accuracy of the data (or my memory) but in the pre-Internet days something like half of all cars were sold at sticker price. You didn’t know what someone else paid for the same car and dealers were able to exploit that lack of information. Now the price you pay for a car is much more close to that which another person pays and some manufacturers are even dabbling with no-haggle pricing, basically saying you’ve got enough market information that you’re going to be able to negotiate effectively and therefore we’ll just bake that realization into our whole approach to pricing. Take hotels and airfares. Some of the booking engines will automatically give you a lower price if someone else makes a reservation at that price. There are whole web sites now devoted to this kind of thing. Yapta’s one and while I can’t remember it, there’s one hotel site that has you send them your reservation and they’ll actually shop it around to get you a lower rate.

I think the real power of the social revolution is that it will actually give consumers a more equal footing. We’ll have more information and while the marketers won’t get the value of their increased information, because they’re asymptoting to no more value, we’re still on the steep part of the curve. In fact, I believe this is where the “Facebook killer” will come from. Facebook had an opportunity to be the champion of the individual as contrasted with Google’s championing of the marketer. But they made the easy monetization choice and cast their lot with the advertisers. Someone’s going to step into that role. It could be a visionary startup. If I were Steve Ballmer at Microsoft, thinking I’ve missed the social revolution, I might make that play, hedging bets with their Facebook relationship/investment. It could even be someone like IBM, effectively an arms dealer equipping both sides of the battle. They’re actually the leading player in the whole Open Social movement these days, taking over when Google inevitably lost interest. (It didn’t rule the world in the first 72 hours.)

Tom:

In my opinion, we routinely make the mistake of confusing direct response (DR) with brand marketing and try to make them the same. But, they are fundamentally different.All the pricing stuff you referenced is absolutely right in commerce but doesn’t have much at all to do with brands. In a transaction, more information is almost always a good thing — “you can buy the same thing across the street for less” is literally worth something to know.In a brand relationship, more information is often neutral or even slightly negative (“yeah, I know you prefer jalapeno ketchup but I hate jalapeno so…”).There are many things in our life that are not a considered purchase, and that’s actually an *awesome* thing. I can walk around the supermarket tossing stuff in the basket without thinking about it. I can either zone out — “hmm, with a better drum track this Muzak version of Live and Let Die would be really good” — or I can invest my time in thinking about something else.

In social, there’s this weird illusion that because Jonathan “likes” jalapeno ketchup his friends will somehow “like” it too, because he’s an influencer. But the reality is that at best — at the very best — a friend who hasn’t had jalapeno ketchup in awhile might see that you “liked” the brand and think “what the hell, I’ll pick up a bottle”.

Again, I’m not saying this has zero value. It just doesn’t have much more value than a billboard. It’s drive-by media.

Me:

I’ll accept your premise that DR and brand marketing are different, or at least that’s an argument for another day. I could be provocative and say we’re getting closer to that thing to which every brand marketer pays lip service to but secretly laughs at: your brand is what your customer says it is. I believe that to a point but for the sake of this argument, I want to go in another direction.

Where I want to go is declaring that social/big data/mobile is moving us towards a world where DR components are increasingly prominent. In the good old days, I was a loyal United customer. Now I’ve got price comparison ability, unbundled services and shared experiences and what before was a brand/loyalty purchase is +today, for me, much more of a DR-like transaction. The “loyalty” programs are being devalued and instead we have new loyalty providers. I get my points less from an airline or a hotel but from a credit card or from Founders Card, effectively a collection of like-minded customers who have banded together to achieve collective economic power that may not have been available to us individually. We’re growing more DR-like and the brands we’re loyal to are those who aggregate our clout across the brands to which we once might have been loyal.

Tom:

The idea of brand loyalty was largely cooked up by ad agencies and embraced by marketers who want to believe it.In reality, in nearly every product or service category there are two or three “acceptable” brands a consumer might buy. Most customers have a preference, but can easily be swayed by a coupon or other offer.

More than anything, your brand is the product. Apple isn’t cool because of its ads — its ads have been cool because the products have been cool. The iPhone and iPad launch ads were basically product demos. Here’s the product and a hand using it, on a white background. And some cool music.

The closer a brand’s products are to being a commodity, the harder it is for advertising to differentiate them and the lower brand loyalty is.

But I would argue that the real reasons deals are becoming more prevalent are because:
A) that’s what marketers were erroneously taught that this is what “digital best practices” are; and
B) most companies over the past three decades have become much better at taking costs out of products than at putting innovation into them.

Tom again:

More than anything, my argument rests on efficiency — both for the marketer and the consumer.Let’s start with marketers. There is no doubt that word of mouth is effective, and that social media mentions have value (even as drive-by media). The question for marketers: what is the most efficient way to generate this?

I would argue that the two most efficient tools to generate these are:
1) Superior products; and
2) Mass marketing

Consider Apple vs. Dell. Apple has invested zero in social media. ZERO. Dell has been a poster child as an early adopter of social media.

Apple has invested heavily in creating superior products and in mass marketing. Dell has invested heavily in social media.

Which brand has more positive word of mouth and social media mentions?

Now, let’s consider consumers. There is no doubt that there are more ways than ever to research products, and that advertising is generally viewed with skepticism and sometimes derision.

However…

Deeply researching only those products that are in your kitchen would take a large number of hours for scant return. It’s just not efficient. So, how do we choose? We know what the big brands are because they advertise — which also ensures they are the ones we can easily buy at our local store. All of these brands have some sort of reputation, good or bad.

Typically, a quotidian purchase gets very little consideration at all. And this is *good*. The downside risk of choosing the wrong brand is scant, and the upside reward of choosing a better brand at the supermarket is marginal at best.

This flips *entirely* for high-consideration purchases. Trust me when I tell you my wife and I researched our new kitchen appliances to death. Same for our car, same for travel. Why? There was big upside to getting it right and big downside to getting it wrong.

Despite all this, a problem for Facebook — and for all of social media — is that there’s only so much consumers can hear before they stick their fingers in their ears. Personally, the more people I follow on Twitter, the more unusable it gets. The more feeds in my RSS reader, the more unusable it gets.

Attention is scant, and fragmented. On a fundamental level, I get that being “always on” makes it more likely that a customer will randomly bump into my message. But when everyone is “always on” it’s also damned noisy.

The final word

It’s my blog. I get the last word. 🙂 Tom and I perhaps agree more than we disagree. The current forms of “social advertising” are fundamentally flawed. The reason why Google is so wildly profitable is that its advertising space is highly contextual. When I search, the fact that someone will actually pay to put their message in front of me means they think they have something to offer to me. In a social context, you may have great information about me but the context is wrong. I’m not on Facebook to be advertised to. Advertisers are not enhancing my social interactions. We’re still years away from it but I believe the social revolution will flip the relationship between marketers and customers in profound ways. But that’s enough for today.

I’m a little late getting this post up here — we recorded the session a little over a week ago — but better late than never. And for the second time in a row, snow interrupted our plans so instead of recording with a live audience at the Stamford Innovation Center, we participated remotely (using Google+ hangouts). I do need to work on my video skills. Despite having two lamps just out of camera range, my lighting is suboptimal. Then again, my pretty face is never going to carry the day… 🙂

For those of you who want to watch the full video (an hour), you can find it here. This month, we talked about:

Yahoo and Marissa Mayer’s work-from-the-office edict

Groupon’s CEO resignation

The new Facebook feed

Microsoft’s EU fine

iWatch (we didn’t really talk about this in the video here but I’ve got a few observations)

Yahoo and Working from Home

This is odd, coming from someone who has spent large portions of the last 20 years working from home and who is such a big believer in collaborative technologies, but I totally understand and support Marissa Mayer’s decision to require Yahoo employees to work from the office. Fundamentally, she inherited a broken company. I’m a member of a group called the Internet Oldtimers and one of the group’s members described the scenario perfectly. He said that good people in a bad system become bad people whereas bad people in a good system become immediately evident. Yahoo had a bad system which encouraged even the best of people to perform at substandard levels. How do we know Yahoo had a bad system? Mayer came from Google, as data-driven an organization as I’ve ever encountered, and simply, she went to the data. It would be one thing if people were working diligently from home but the data just showed another story. Mayer looked at the VPN logins and quickly discovered that people weren’t connecting to the company’s internal network. It’s one thing to say collaborative tools enable remote working. It’s a whole other scenario when your workers aren’t using the collaborative tools! They didn’t even bother to fake working very well. Yes, the system was broken. You could argue that this is a draconian step and that it will cost Yahoo in terms of current employees and ability to recruit new staff. That may be true but the bigger challenge is reorienting the organization and bold, decisive moves are required. I don’t expect this to be a permanent work condition but until and unless Mayer showed her commitment to a new Yahoo, she would have been merely rearranging deck chairs on the old Yahoo. I applaud and support the move.

Groupon’s CEO Resigns

Too much of this story has been about Groupon’s ex-CEO Andrew Mason and his polarizing style, his company accounting challenges and his flamboyant resignation (refreshing in its candor). I actually wrote about Groupon over two years ago, questioning their business, and in the intervening time, I think their challenges have only grown larger. Here are the fundamental problems for their business (and not just theirs, but LivingSocial and many other daily deals purveyors):

The deals are not great for merchants. They’re indiscriminate, send a bad message, encourage “bad” business, don’t help the merchant’s information-gathering and give the merchant almost no control. Other than that, they’re great. LOL

The wrong party is in control. Deals should be structured, offered and managed by the merchant itself. You should be able to offer deals whenever you want to whomever you want. My favorite talking point here is to use the example of a donut shop. Let’s say you’ve had a slow day and it’s looking like you’re going to have to throw out a bunch of donuts. Wouldn’t you want to run a deal at the last minute, just in time for the evening rush hour, offering a special? You could make this look like a customer incentive for your best customers instead of the existing model where you’re discounting products/services that your loyal customers have been paying full price for. You could make this decision at 4 p.m., instead of weeks or months in advance. You could do this every time your inventory is high instead of once every few months. This is a fundamental problem of approach for Groupon and its ilk, and not one a new CEO is going to solve.

To feed the public market appetite for growth, Groupon moved from daily deals into an adjacent market, Groupon Goods. I’ll never understand why companies move into businesses that jettison much of what’s attractive in their legacy business. The great thing about the daily deal business is that you have no inventory. Your only three cost buckets are technology, marketing, and your sales commissions. This is a business with minimal risk as you can align costs relatively easily to revenues. With Groupon Goods, you’re now taking possession of inventory. If you don’t sell it, you’re stuck with it…or you have to lower prices, cutting your margins. Before this, Groupon could have been run out of a phone booth. Your servers were in the cloud, your salespeople were on the phone or on the road, your inventory was totally digital. Instead of pushing, and fixing, the core business, Groupon went broader. Big mistake in my mind.

The New Facebook Feed

Facebook is rolling out a new look and feel. Again. I wrote about this challenge even longer ago, almost four years back now. Back then, the challenge was competing with Twitter and its real-time impact. That challenge remains to this day and we’re now hearing of Facebook’s plans to incorporate hashtags, mimicking yet another Twitter feature. Facebook is now fighting battles on multiple fronts. In addition to Twitter, there’s now a battle for approach and design with Pinterest and Instagram. Yes, I know Facebook now owns Instagram but if you look at Instagram, Pinterest and even Microsoft’s new platforms, you’ll see a more richly graphical approach. I won’t get into this approach…well, maybe I will, briefly. I think much of this is eye candy at the cost of value, information and time. A picture may be worth a thousand words in some contexts, but in a lot of these instances, I’d rather see the thousand words or at least something that conveys greater value than just an image and a text headline. I think a lot of the motivation behind this approach is to get people to actually click through on something. More clicks = more opportunities to display ads or at least pump up your metrics. For the user — at least for me — more clicks = more time to get to value. I really don’t like the approach. But Facebook seems to be embracing the approach, whether it’s to increase its advertising footprint or contain Pinterest. There are laudable goals in the redesign — more easily connect users with the information they want to connect with — but I’m not convinced this is the real motivation or, if it is, that this redesign accomplishes that goal. But as always, we’re stuck with it. Expect to see tons of posts from your friends decrying the new approach…until we accept that this is the way it’s going to be. Oh well. At least maybe they’ll fix the multi-columnar approach, the logic of which I still can’t figure out.

Microsoft’s EU Fine

Microsoft was fined $731 million by the European Union. Why? Because it didn’t fully implement its deal to open up the browser market to competition, a deal struck in 2009. At that time, Microsoft had a near-dominant share of almost 80% of the desktop market. We all know what’s happened since then. Despite not keeping up its bargain, Microsoft’s share has steadily decreased and it now represents only about half of the desktop market and, if you factor in mobile, considerably less than half. In fast-moving markets like technology, somehow markets do a better job of adapting to competitive situations than governmental remedies. I’m not saying that the EU’s fine was misguided — they have to enforce their agreements — I’m just saying that the EU sanctions were, and continue to be, largely ineffective. Fining someone for four year old behavior (several generations in Internet time) while failing to act on current issues is, unfortunately, what we’ve come to expect from governmental bodies. I’m not advocating that they go sue Google but if they’re genuinely concerned with fostering real competition, going against emerging and existing monopolists with sanctions with real teeth would be much more impressive than what amounts to a (soft) slap on the wrist to a former monopolist. If anything, this action would encourage me if I were considering a current offense. If this is the timeframe and scale over which remedies will be extracted, it’s no deterrent at all.

iWatch

Somehow I can’t get excited about this one. Perhaps Apple’s going to surprise me. Again. But I just don’t see an iWatch as the product which is going to reinvigorate Apple’s prospects. Back at the beginning of the year, I said their big opportunity is the digital home, and I stand by that belief. Yeah, yeah, the watch market is a $60 billion market. But if you’re under about 28, you probably don’t wear a watch. Can Apple make it cool? Probably. But the trend is to bigger screens, not smaller, and I’m just not convinced that anyone can make a watch a compelling companion to my smartphone, and make no mistake about it, this will be a companion product. I feel bad enough when I have to shell out $100 with every new phone for screen protectors, batteries and the like. Is it that much more powerful to have reminders on my wrist instead of in my pocket? Perhaps it could be a little more interesting if it incorporates the emerging niche category of activity monitors like Jawbone’s Up. We’ll just have to wait and see.

What’s perhaps most problematic for Apple is that their time to market advantage may be non-existent. Apple has had huge market advantages when it has launched its category-defining products, with competitive responses often lagging by a year or more. Not so with the watch. In fact, while the Apple iWatch remains merely a rumor, Samsung has come public with its intention to do one, and its indication that it has been working on it for a long time. While I question how genuine that effort was prior to the Apple rumors, it’s clearly a different world when a rumored Apple product introduction is met by immediate competitive responses, not stunned gasps of “they did it again.”

What’s Next

In addition to these timely news items, we talked about a couple of larger thematic subjects:

The “IT-ization of consumers”

What’s next, after social, mobile and cloud

I’m not going to get into these here and now — this blog post is already long enough — but i’m going to write at greater length about these topics in the coming weeks. I identified social, mobile and cloud as my three disruptive trends, over five years ago. As they begin to coalesce as I predicted, people started to ask me “so what’s next?” For a long time, I answered that with “more commercialization and better integration of those pillars.” We still have a long way to go there. But I already see the seeds of the next big transformation which will, once again, change the face of technology and business. I just love that about this business; it’s never static…even while we all struggle to keep up with the pace of change and have to fight to incorporate new technologies and approaches. But the next change is coming and I’ll start surfacing that soon. (If you want a head start on your competition, you know where to find me.)

The entries of Amazon and Facebook into the streaming video marketplace stand to change the economics and dynamics of watching video online. While shortcomings and constraints will slow their impact in the near-term, make no mistake about it: the economics and approaches have changed.

It’s easy to dismiss these solutions in the short-term. No, Amazon doesn’t have the library of a Netflix. No, the Facebook experience isn’t optimized for long-form video consumption. If, however, you dismiss these two based on these shortcomings, you’re missing the point.

Let’s look at Amazon first. For Amazon, this is a shrewd, and necessary move. Amazon Prime, which offers free two-day shipping for all Amazon purchases for $79/year, is increasingly irrelevant as Amazon’s book sales move to digital. By the middle of last year Kindle sales on Amazon surpassed hardcover books, by the four quarter that extended to paperback books as well, and on Christmas day Amazon sold more e-books than physical books combined (although that number may certainly have been skewed by the number of people opening Kindles as presents that day). Thus, it is clear that Amazon had to do something to enhance the value of Prime for its most valued customers. Of course, Amazon sells much more than books so Prime still has considerable appeal even for those who consume their books digitally. Amazon wins either way. If you get value because of the free shipping offer, the availability of streaming video for no extra cost is a compelling value-add. And if you’re evaluating the competing streaming video options, Amazon is cheaper than Netflix ($100/year) and offers more than just streaming. (Here’s an interesting analysis of the customer overlap between Netflix and Amazon.) What’s most notable about Amazon’s offer:

It’s cheaper than the market leader, without any other considerations.

It’s bundled with other value, making it appear free to a significant range of customers.

Facebook’s entry is much more limited and complex but longer-term perhaps more impactful. Much more limited. A single movie at launch, The Dark Knight (incidentally, one of my 10 favorite movies of all time). But this one is much more potentially transformational. So what’s interesting about Facebook’s entry here?

While initially a standalone experience (and probably a sub-optimal one at that), given its market position I expect Facebook’s movie-viewing experience to rapidly evolve to a social experience. From a marketing perspective, that talks to the viral potential. More importantly, though, from a viewing experience, you could envision how Facebook could leverage its platform to increase the social elements in movie viewing in both synchronous and asynchronous fashions. For instance, you might not only chat with other friends in real-time while you’re both watching a movie, you might also see the comments from other friends appear at the same point in the movie even if they’re not watching it at the same time. Facebook can significantly shape the social movie viewing experience in a way that doesn’t exist today. Twitter leads the real-time synchronous market today (e.g., we all Tweet during the Academy Awards) but the non-real-time and asynchronous markets are very much in play and Facebook can lead the way here.

The role of Facebook Credits in paying for movies is very interesting. I have long been a believer of “count down” models vs. “count up.” A count-up model is one where you pay for each purchase. Every transaction counts up the amount of money you’re spending on the particular activity, and thus is an individual purchase decision. In a count-down model, you have a pool of credits you can “count down” against. In your mind, the money is already spent and it’s just about how you’re going to spend the money. With Facebook Credits, users will have a variety of ways to spend their currency (games, movies, other products and services) and a variety of ways to acquire it (you can even buy gift cards at Target). This will make it easy to make an impulse buy of a movie (whereas Netflix and Amazon at their price points are considered purchases).

For different reasons, the entrance of Amazon and Facebook into the streaming video marketplace change the landscape. The net result is that the marketplace has new competitive requirements.

Movie viewing alone may not be enough to sell a movie service.

The social experience of watching a movie online is in its infancy but is likely to change very quickly.

The payment models for video consumption are expanding, and will include: